11 Nigeria Plc’s decision to change pension plans resulted in a loss of N1.86 billion in the profit and loss account, prompting a surprise drop in profit.
11 Nigeria Plc, formerly known as Mobil Oil Nigeria Plc (MON) before parent company Exxon Mobil, a United States International oil company, sold majority stake to NIPCO, an indigenous downstream oil and gas company, is a key player in the downstream oil and gas industry.
For the first nine months through September 2017, 11 Plc’s net income dipped by 20.09 percent toN4.59 billion from N5.74 billion as at September 2016.
The drop in profit was due to an item of N1.86 billion, being loss identified in the books a result of change in pension plans. The amount is part of a N2.22 billion exceptional item in the profit and loss account.
“On 1 February, the company migrated a significant portion of its Defined Benefit Scheme (DBS) to Defined Contribution Scheme (DCS). This represents actual loss recognized in the profit and loss account on settlement,” said the company in note 19 of its financial.
However, the downstream oil and gas giant’s Earnings before Interest and Taxation (EBIT) or operating profit increased by 6.90 percent to N8.89 billion.
This is before exceptional items were deducted before arriving at profit before taxation.
11 Plc’s gross profit margin fell to 12.11 percent in September 2017 as against 16.56 percent in the period under review.
Net margins, a measure of efficiency, dipped to 5.20 percent in the period under review, from 8.02 percent as at September 2016.
While 11 Nigeria Plc recorded a 22.79 percent increase in sales to N88.24 billion in the period under review, future top lines (revenue) and margins could shrink on the back of government reforms and reduction in fuel consumption.
Hitherto, oil marketers comprising mostly downstream outlets of Total, Forte Oil, MRS, Conoil, and NIPCO, among others imported around 50 per cent of the petroleum products consumed in the country while NNPC supplied the balance with little contribution from the refineries.
However, NNPC now imports over 90 percent of petroleum products, which has a negative impact on the cash flows on marketers.
Last year, federal government hiked the price of fuel to N147 from N87 previously, which marked the end to a subsidy regime fraught with corruption and waste of government resources.
The shortages of foreign currency to import petroleum products and price increases have made it unprofitable for marketers to import fuel at N145.
Some analysts are of the view that a reduction on fuel consumption could undermine future profit.
“Volumes are dropping and NNPC has 90 days of storage and demand has fallen as people are managing their consumption,” said Dolapo Oni, Head Energy Research at Ecobank Limited.
In economics people tend to be more conservative with resources when they pay the market price of a product. When fuel was selling for N87 and below at government subsidized price, consumers put on the generator set for an indeterminable period of time.
Johnson Chukuwu, managing director of Cowry Asset Management Limited said that oil marketers cannot make a profit at the current controlled price.
“Trading in the downstream sector is no longer profitable as profit margins have been eroded,” said Chukwu.
BALA AUGIE
